Implications of “The Growth of Finance” on Financial Regulation

Abstract

This essay aims at connecting the findings of Greenwood and Scharfstein, authors of “The Growth of Finance”, and my research topic "quantification of regulatory risk and impact of new regulation on business models”. The exercise focuses on how developments in the financial subsectors credit intermediation and asset management, for which a sound regulatory framework is needed, can be connected to prudential regulation. Prudential regulation, i.e. capital and liquidity regulation, primarily mitigates the weaknesses of the financial sector, which are pointed out by Greenwood and Scharfstein. Understanding the implications of prudential regulation, including societally beneficial as well as negative aspects, is the key aspect of the proposed dissertation topic. The outcome of this exercise with regards to the research agenda is that aspects such as financial macroeconomics , welfare considerations, and consumer protection issues might be worth adding.